JAINEX FIRE & SAFETY SYSTEMS P. LTD,MUMBAI vs. ITO 6(3)(2), MUMBAI

In this appeal, the only dispute relates to the action of lower authorities in holding that the purchases made by assessee from M/s. Niddhish Impex Pvt. Ltd. of Rs.5,05,398/- and M/s. Deep Enterprises of 2 M/s. Jainex Fire & Safety Systems P. Ltd.

At the time of hearing, the learned representative for the assessee pointed out that assessee is in the business of manufacturing and trading of fire fighting equipment parts and accessories and during the year under consideration purchases effected from the aforesaid two parties have been held to be bogus merely for the reason that the said two parties have been found to be defaulting on VAT payments and that they were merely providing accommodation bills. It is pointed out that the said action of Assessing Officer is based entirely on the information provided by the State Sales Tax Department. The learned representative pointed out that the assessee does not indulge in obtaining of any accommodation bills and pointed out that, in any case, the entire amount of purchases could not be treated as income because the assessee has indeed effected purchases and executed sale transactions. The learned representative relied upon the decision of the Hon'ble Gujarat High Court in the case of CIT v. Simit P Sheth, 356 ITR 451 (Guj) to point out that at best under these circumstances what is assessable is a reasonable profit element embedded in such transactions. The learned representative pointed out that assessee had no objection if 15% of the amount of such purchases is assessed instead of the entire amount of purchases.

The ld. DR, however, defended the orders of the authorities below.

I have carefully considered the rival submissions. A perusal of the orders of authorities below reveal a pertinent point that the additions have been made primarily for the reason that the two parties in question appear in the information obtained by Assessing Officer from State Sales Tax Department that such parties are indulging in issuing bogus bills. Only on such basis it has been held by the Assessing Officer that the purchases in question are not genuine. Assessee, on the other hand, has been consistently asserting that the sales made by assessee itself show that the quantity of purchases in question have indeed been procured and used for its business. No doubt, assessee has been resisting the charge of Assessing Officer, but the factum of said purchases remaining unverified is also clearly emerging. At the same time, there is no specific material adverse brought out by the Assessing Officer to show that the instant purchases, which have been questioned by the Revenue are bogus; and, in this view of the matter, I deem it fit and proper to follow the ratio of judgment of the Hon'ble Gujarat High Court in the case of CIT v. Simit P Sheth (supra) and direct that 15% of the amount of purchases in question is liable to be assessed as income. Accordingly, the order of CIT(A) is set-aside and Assessing Officer is directed to recompute the addition as above and delete the balance.

In the result, appeal of the assessee is partly allowed.